DEADCLIC

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi everyone, I think I`m just about getting there with my debits and credits now. Trying to use deadclic to remember but can someoneplease summarise what each item is. IE? I know that expenses will be wages, rent, bills etc but what general things do I put in the assets, drawings,liabilities,income and capital?
Thanks for any replies. :D

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    Hi Bella

    Assets generally include: Bank accounts in debit (ie with money in them), cash in hand, debtors (ie people who owe you money) and stock.

    Drawings is classed as anything that the owner takes out of the business, this is normally cash or wages for the owner and can be off-set against the capital.

    Liabilities include: loans, bank accounts in credit (ie overdrawn) and creditors (ie people you owe money to) and capital is considered a liability as this is funds that the business owes back to the owner.

    Income is mainly sales, but can include bank interest received.

    Capital is anything that the owner invests in the business, cash, private assets etc.

    I hope this helps!

    Gem

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    Thanks very much for that. I`m just about getting there!
    Bella. :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    Actually i`ve just printed your reply and re read it and its brill! Plain English! Thanks very much.
    :D:D:D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    I used to often use lettters to help me.

    For example

    Debtors
    CReditors

    Drawings

    etc

    This was a very simple way of learning them. Also I understand that it can sometimes be boring but if you practice your extended trial balance over and over it is easier to remember what are debits and credits and what items also go onto the P&L and BS.

    I used to do cue cards in my intermediate papers which are actually a very good way of learning, and can often help you to remember such information.

    In short, a business owes the owners what is known as capital (a credit) anything taken by the owner are drawings (a debit/ asset on balance sheet)

    For example, if a director had capital of £1000 and introduced £500 from his own pocket to the business, the double entry would be:

    Dr Bank 500
    CR Capital Account 500

    If he was to take £50 for his own use, the double entry would be:

    Dr Drawings 50
    CR Capital account 50

    If both of these transactions took place, then the director would currently have £1450 in his capital account.

    Any other queries do not hesitate to ask



  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    I thought that you didn't make a note of drawings in the capital account?? I thought the double entry was credit the bank, debit drawings account??

    ( just checked back at my study book and it says drawings should not be directly debited to the capital account. A seperate drawings account should be used )

    Can someone please clarify this? Should any entry be made to the capital account if a drawing is made?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    Gem I think you are right. If the owner was to take £50 for himself it would be credit cash/bank and debit drawings. The capital account is always a credit entry as it is money owed to the owner by the business.

    A very concise explanation though from YH.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC


    Strange that this was mentioned by Gem since I've just had a look back at the original entries when the company was set up and separate drawing accounts have never been used by the directors when taking their money out. Since day one, when the capital started to be repaid, the entries have always been to credit the bank account and debit the loan (capital) accounts, thus reducing their investment that way.

    To my knowledge, this has never been questioned or pointed by our accountants in the three sets of year end accounts that have been filed so far.

    Regards,

    Robert
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    Essentially the balance on the drawings account for the year acts in more or less the same way as the profit and loss accounts. The drawings total is credited, capital introduced (if any) is debited and the profit for the year is credited (debited if loss) and the capital account is offset with all of these to have a capital account c/fwd to be b/f into the next year.

    It isn't normal practice to debit any drawings to the capital account as drawings, capital introduced, and the capital account b/fwd should all be shown separately in the company's accounts.

    That's how it works here anyway and has done for 30+ years.

    Kind regards
    Steve
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    Hi bella

    I hope we're not all confusing you! But another anagram you can use is PEARLS

    Purchases - Materials purchased that will be sold
    Expenses - Wages etc as you know :)
    Assets - Vehicles etc
    Revenue - Sales and income
    Liabilities - Creditors etc
    Sales - Sales income

    Gem
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC
    bella-71 wrote:
    Actually i`ve just printed your reply and re read it and its brill! Plain English! Thanks very much.
    :D:D:D

    No probs :)
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    African / Elephants
    Assets / Expenses
    on the left

    Likes / Ice / Cream
    Liabilities / Income / Capital
    on the right

    We used to do a T account with African Elephants on one side then Like Ice Cream on the other and it helped with Trial Balances. :D We were told this in foundation but it became more useful in Intermediate.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:DEADCLIC

    You are right about the debit of the cash and bank. I do it in this way too, either I was having an off day or this would be (although inaccurate) the way I'd explain it, which would be somewhat confusing

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